In the latest sign of turbulence in the US economy, New York-area manufacturing suffered a large and unexpected setback in August, according to a survey released on Monday.
The New York Federal Reserve said its Empire State Manufacturing Survey plunged by 42 points in August to -31.3. That marks the second-largest monthly decline on record for this closely watched gauge of economic activity. The biggest drop was recorded in April 2020, when the economy was ravaged by the onset of the Covid-19 pandemic.
The August reading leaves the Empire State survey at its lowest point since May 2020 and at among the lowest levels since the survey launched in April 2002. Any reading below zero indicates a contraction.
“The headline general business conditions index plummeted,” the report said. “New orders and shipments plunged, and unfilled orders declined.”
Economists had expected a more modest slowdown in the survey that would still signal expansion.
“Startlingly terrible,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a note on Monday. “Momentum in the manufacturing sector certainly has slowed, but this is a collapse.”
However, Shepherdson said the scale of the deterioration is “scarcely believable” because it does not seem to be supported by other indicators.
It’s worth noting that NY manufacturing represents just a small portion of America’s broader manufacturing base. Investors and economists will be on alert for similar declines in the coming days and weeks from other regional and national manufacturing gauges.
“Today’s downbeat news indicates that weakening domestic demand, high inflation, and rising interest rates are constraining the sector’s advance,” Oren Klachkin, lead US economist at Oxford Economics, wrote in a note. “However, we would not take too much away from this report as it likely paints an excessively downbeat picture of manufacturing.”
Just 12% of manufacturing respondents reported improving conditions, while 44% said conditions weakened, according to the survey, which was collected between August 2 and August 9.
Looking ahead, manufacturing executives signaled concern: The index for future business conditions came in at just 2.1, indicating businesses are not optimistic about the next six months. Although indexes for future new orders and shipments are positive, they remained at “low levels.”
The good news is that the NY Fed said labor market indicators signal a small increase in employment and a dip in prices paid.